SUV inventories are swollen and sales are slow
08:25 AM CDT on Friday, April 23, 2004
By TERRY BOX / The Dallas Morning News
ARLINGTON – The General Motors assembly plant here, one of the busiest truck factories last year, cut its production of big sport utility vehicles 14 percent in the first quarter.
Many dealers probably breathed a small sigh of relief.
With the overall SUV inventory nationwide at least 20 percent higher than dealers want, some literally don't have the space to park any more new trucks. Consumers aren't buying at a pace some had hoped.
Through April 1, dealers had an average 103-day supply of Chevrolet Tahoes, a 106-day supply of GMC Yukons and a 104-day supply of Cadillac Escalades – the primary vehicles that the Arlington plant builds. Most dealers prefer a 70- to 75-day inventory.
"You can't be 80-plus days in all your cars and trucks because you've only got so much space to stuff them," said Paul Taylor, chief economist of the National Automobile Dealers Association. "There are only so many Kmart lots you can lease for your overflow."
Sales of the Tahoe, Yukon and Escalade – and most other full-size SUVs – were unusually strong in the first quarter as dealers ordered vehicles for the spring selling season. The Tahoe's sales were up about 24 percent from the year before, while the Yukon's increased 46 percent and the Escalade's rose 11 percent.
Automakers often encourage their dealers to take as big a monthly supply of vehicles as they can, promising to support them with consumer incentives and other discounts.
But in most areas of the United States, sales to consumers started more slowly than many had expected this spring, and truck inventories – which have been growing for the last year – are swollen.
"I believe in the East and Midwest, there's a good reason for it – weather," Mr. Taylor said. "People haven't been out shopping for cars. This winter was 20 degrees colder in all of those states than it usually is."
No overtime
Manufacturers count the vehicles their factories build as revenue as soon as they roll off the assembly line, so more production means more income for the automaker.
But Mike Glinski, manager of the GM Arlington plant, said this week that the plant has no overtime scheduled in the second quarter, except for one day during a special open-house ceremony in early June.
"Right now, the preliminary forecast for this year is really no overtime," Mr. Glinski said. "This is the slowest since I got here two years ago."
None of GM's other full-size SUV plants is working overtime, either.
GM said in its earnings report this week that while sales of its cars and trucks were up in the first quarter, the company was cutting North American production by 7 percent because of the growing inventories of unsold vehicles.
If truck demand doesn't increase, the Arlington plant will probably build about 200,000 vehicles this year, compared with more than 230,000 last year, Mr. Glinski said. Still, no one is talking about layoffs or downtime at the plant, he said.
Dan Flores, GM's manufacturing spokesman, said the automaker is not altering its business model, which calls for running high-profit plants like Arlington at maximum production. The cash flow that the plants generate – and Arlington can easily build $30 million worth of SUVs a day – helps GM cover its high employee pension and health care costs, as well as the expense of consumer rebates.
However, when inventories get too high, GM just has to live with less revenue. "There is more need from a dealer's perspective to build more inventory in trucks than in cars because that's where the demand is," Mr. Flores said. "But we also have to look at demand in the marketplace."
Fundamentals strong
Although GM and other automakers believe that consumer interest in full-size SUVs remains high, they say vehicle sales are slowing because of the still-sluggish economy, high fuel prices and dozens of SUV choices.
"It's a combination of the economy, a lot more very competitive products, plus our products have been in the marketplace for a while," Mr. Flores said. "But we think our [full-size SUV] products are still fundamentally very strong."
GM's economic model and reliance on high production of profitable vehicles still makes sense, said George Hoffer, an economist at Virginia Commonwealth University in Richmond who follows the auto industry.
"There's no reason to panic or abandon the model," Dr. Hoffer said. "By any reasonable standard, these vehicles have done better than anyone could have expected. Production just got out of hand. Their eyes got too big for their stomachs."
Tom Durant, owner of Classic Chevrolet and Classic Hummer in Grapevine, has about 1,500 vehicles on his Chevy lot – more than 1,000 of them full-size trucks.
"Everyone was expecting '04 to be a lot better than '03, but it's just a little better," Mr. Durant said Thursday. "The manufacturers have had large rebates for a while."
Last year, sales at Classic started slow but grew stronger as the year went along. Mr. Durant opted to keep a big inventory then and it served him well, he said.
"Interest rates are low, so my biggest problem is where do you park them all?" he said. "I've got a ton of Suburbans on the ground and a ton coming. But that's what saved me last year."
Like Mr. Durant, Ray Huffines had expected the economy to improve more and ordered a large number of full-size trucks for his Chevrolet dealership in Plano.
"Right now, we have a very large inventory and we are not needing to order many more," said Mr. Huffines, owner of Ray Huffines Chevrolet. "I don't think it's anything against the Tahoe and the Suburban. It's the economy. When the economy gets better, we think sales will get better."
With the elimination of overtime, some workers at the plant – who can earn more than $350 a week in extra pay – may miss the additional income, said Jimmy Conway, president of United Auto Workers Local 276, which represents the 2,700 hourly workers at the plant.
But Mr. Conway also thinks that much of the slowness in SUV sales is largely related to high gas prices and the shocking $50 or $60 expense to fill a truck gas tank.
"Once gas prices level off some and drop 15 to 20 cents, people will go back to buying these vehicles," Mr. Conway predicted. |
